“Alternative fuels and advanced technology vehicles are seen as integral to improving urban air quality, decreasing dependence on foreign oil, and reducing emissions of greenhouse gases. However, major barriers — especially economics — prevent the widespread use of these fuels and technologies.

This report assesses the short-term outlook for production of next-generation biofuels and the near-term challenges facing the sector.

Next-generation U.S. biofuel capacity should reach about 88 million gallons in 2010, thanks to one plant becoming commercially operational in 2010, using non-cellulosic animal fat to produce green diesel. U.S. production capacity for cellulosic biofuels is estimated to be 10 million gallons for 2010, much less than the 100 million gallons originally mandated in 2007.

Near-term sector challenges include reducing high capital and production costs, acquiring financial resources for pre-commercial development, developing new biomass supply arrangements, and overcoming the constraints of ethanol’s current 10-percent blending limit with gasoline. Charts and tables.